Rural hospitals across the United States are grappling with the viability of a new emergency-focused care model as the “One Big Beautiful Bill Act” threatens to reshape federal funding for rural health. A century-old facility near Michigan’s southern border became one of the nation’s first to convert to this stripped-down model, designed to provide a federal lifeline for struggling facilities. However, the rapid decline in patient volume at Sturgis Hospital ultimately led to its closure in June, a development that experts are calling a potential warning sign for the program.
The emergency hospital model, which took effect in 2023, represents a fundamental shift in how rural facilities operate. Hospitals that convert must offer emergency services and give up their inpatient beds, though they can continue offering outpatient services. In exchange, the facilities receive a 5% boost in Medicare payments plus an extra monthly facility payment, totaling about $3.6 million a year. This financial package was intended to help hospitals survive by cutting costs rather than volume.
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Proponents argue the model offers a path forward for facilities that previously averaged less than one inpatient admission per day. For example, Melissa Gale, CEO of Landmann-Jungman Memorial Hospital Avera in South Dakota, said her facility was “a little above or below break-even year-over-year for decades.” With the additional federal funding, Gale hopes to draw in more patients for mammograms and add a wound care program. She also noted the hospital has improved employee benefits and upgraded plumbing and heating since converting.
Funding Gaps and Policy Questions
Despite the financial lifeline, many rural hospitals remain vulnerable to broader legislative changes. The “One Big Beautiful Bill Act” is expected to reduce Medicaid funding by more than $900 billion over 10 years. This reduction poses a significant threat to rural areas that often have high Medicaid enrollment. Lauren LaPine-Ray of the Michigan Health & Hospital Association noted that the state expects its hospitals to lose $6 billion in Medicaid payments over the next decade due to these cuts.
The funding structure of the Rural Health Transformation Program has also drawn criticism. Carrie Cochran-McClain of the National Rural Health Association described the current model as a “critical start, but it must evolve.” Some lawmakers have already proposed changes to the law, including allowing converted hospitals to offer new services like in-house obstetric labor and delivery units or allowing them to use a federal drug discount program to generate revenue.
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While the emergency hospital model has helped some facilities stabilize, the data suggests it is not a universal solution. Of the 56 hospitals that have converted nationwide, two have closed and three have changed their service offerings, according to the Cecil G. Sheps Center for Health Services Research. The experience of Sturgis Hospital, which saw its ER patient volume drop 13% in the two years following its conversion, highlights the difficult trade-offs involved. Hospital officials cited declining reimbursement rates, rising costs, and falling patient numbers as reasons for the closure.
The “One Big Beautiful Bill Act” includes cuts that could affect access to care. Rural providers rely heavily on Medicaid to serve low-income patients. If the legislation passes, the reduction in funding could force more facilities to consider drastic changes. Some officials worry that the model is not enough to sustain operations if payment rates continue to drop.
